Copper's Average Price Seen Rising in 2010

10 Dec 2010 • by Natalie Aster

Copper's continuous price rally to an average $3.18/lb this month in the face of swelling inventories--a sign of weak consumption-but probably won't last much longer, some analysts suggest. London Metals Exchange copper is averaging $2.34 this year because of a weak first-half but, according to the latest consensus of 34 analysts, is expected to average $2.91 in 2010 as monthly prices stay below $3.

Copper prices on the LME averaged $3.15/lb in 2008 but, on a monthly basis this year, have more than doubled this year from the January average of $1.46/lb, partly bolstered by speculation that improving economies eventually will consume more metal. All most nations are doing is stockpiling the metal, though. Stocks have expanded 35% this year and cathode inventoried at LME warehouses of 458,500 metric tons are at their highest level since April. In China, the world's biggest consumer of the red metal, copper stocks have risen sixfold at the Shanghai Futures Exchange this year.

For now, the inventory gain "matters little ... with funds and other speculators still in the driver's seat," analyst Andrey Kryuchenkov at VTB Capital in London tells Bloomberg. The combination of an anticipated economic recovery, concern over labor disruptions and a weaker U.S. dollar has overwhelmed the bearish effects of the buildup of copper, analysts tell the Wall Street Journal.

The analysts' consensus is that next year's copper market will be tighter, says Catherine Virga of CPM Group, a commodity-research firm. Copper is a bellwether for the economy because it is mainly used in housing, power generation and other cyclical sectors. Therefore, it tends to lead other commodities.

Dow Jones Newswires says a series of wage negotiations that could threaten copper production in South America and Canada are weighing on traders' minds since two major mines, accounting for about 9% of total copper supply, will hold wage talks with unions over the next two months.